What Can I Do With My Home’s Equity?
When you own a home, it is often your most valuable asset. As you pay down your Home Mortgage Loan, the amount of equity you have in your home grows. You can use your home’s equity to fund a variety of things by setting up a Home Equity Loan (HELOAN) or a Home Equity Line of Credit (HELOC). HELOANs and HELOCS are popular lending options for a reason: they’re a practical and versatile way to free up some funds.
What can you actually use your home equity to pay for, though? The sky’s the limit, but let’s go over the most common applications.
What home equity lending products are available?
Home Equity Loan (HELOAN)
When equity has been built in a home, it means the appraisal value of the house outweighs the remaining balance on the Home Mortgage Loan. Home Equity Loans (HELOANs) let a homeowner borrow from the value of their home and are actually considered a second mortgage. When you establish a HELOAN, you get a specific amount of money in a lump sum.
Home Equity Line of Credit (HELOC)
Another home equity lending option is a Home Equity Line of Credit (HELOC). Like a HELOAN, you borrow from your home’s value. The main difference is that HELOCs work similar to a credit card, in which you use funds as you need them rather than taking out a lump sum. Borrowers only pay interest on the funds they use.
How to Use Home Equity Products
Once approved, HELOAN and HELOC funds can be accessed through Great Midwest Bank’s online portal or at one of our bank branches.
Overall, HELOANs are ideal for planned expenditures — upcoming expenses with clear dollar amounts. HELOCs, on the other hand, can be a terrific option if you need some flexibility for your funding needs.
How exactly can you use home equity products? That is completely up to you — the borrower. Here are some of the common use cases to get some ideas going!
One of the most common uses of home equity is to fund home improvements. You are reinvesting the existing value in your home to create additional value in your home — it’s a win-win!
For clear-cut projects that have a defined dollar amount, many people opt for a HELOAN. If your project is more open-ended, you might go with a HELOC instead.
For example, maybe you’re working on your living room space. You haven’t priced out every part of the project yet, and haven’t yet decided on whether you want to keep the wood floors or put in carpeting. So, you go with a HELOC to leave more flexibility.
On the other hand, you might know exactly what you want. You plan to refinish your wood floors and already have a quote from a contractor. So, you take out a HELOAN specifically to cover that project’s cost.
HELOANs can serve as a practical way to help pay off high-interest debts.
However, it is best to use HELOANs in this manner if you’re confident you can finish paying off that debt in short order — within a few years is a good rule of thumb.
HELOANs will typically have a fixed rate initially then will change to an adjustable rate. Being able to consolidate and pay off your debt while you still have the lower fixed interest rate will be to your advantage. If you wait, your adjustable interest rate may not be lower than the rate on the debt you set out to consolidate.
In line with using home equity to help consolidate debt, some borrowers use home equity products to cover school tuition. It is an alternative option to a potentially higher-interest student loan. It is helpful to talk to a loan officer to explore your lending best options for covering such expenses.
Additionally, a HELOC can be particularly helpful for other schooling-related expenses, such as textbooks and other miscellaneous fees. Professionals out of college may even use home equity products to fund continuing education costs.
Talk to a loan officer to get started on your Home Equity Loan and learn about current interest rates.
Home equity products can help cover any bigger-ticket items you’re looking to fund. HELOCs and HELOANs are practical lending options that empower borrowers to proceed with purchases they want or need to make.
That could mean buying a bigger couch to accommodate your growing family or investing in a larger-screen TV to enhance your football viewing parties. You may have been wanting to make other upgrades in the living room, like adding surround sound or improving your lighting ambiance.
Sometimes home equity products provide a means for finally replacing larger household appliances that are on their last legs or otherwise not meeting your needs. For instance, the oven that never seems to fire to the right temperature anymore, or your washer and dryer from 1979. Or, you simply want to upgrade some of your appliances — perhaps you want a more energy-efficient dishwasher, or an oven with more features.
As mentioned, you can use a HELOC or HELOAN in any way you like. Some other examples include big events such as weddings or vacations.
Many borrowers also like to take out a HELOC to have available for covering unexpected expenses or emergencies. This includes home repairs, unplanned medical expenses, car maintenance, veterinarian bills, and so on.
HELOCs are a nice safety net for those one-off expenses you just didn’t bargain for: the cat breaks your laptop, the roof springs a leak, or the furnace sputters out in the middle of winter. A line of credit allows you to take out just the money you need to cover an expense and only pay interest on that amount.
Using Equity When You Sell One House and Buy Another
While you’re living in a house, it may be easy to overlook the fact that you’ve built up value in it — especially if you’ve made improvements to the home. If you’re a homeowner looking to move, you can potentially put the equity of your current home toward your next house.
You may be able to use a Home Equity Loan-we call this a “Bridge” loan-toward the down payment on your new home purchase, but keep in mind that lenders have different guidelines on using home equity for this purpose. This approach may allow you to keep your current home for a short period after buying your next house, making for a more convenient move instead of being time-pressed to do so on the day of closing.
When you’re determining your budget and planning a down payment for the new house, factor in the current equity of your existing home. This will help inform your decisions and get the most value for your dollar. The loan officers at Great Midwest Bank are happy to help you explore your options.
Deciding Whether a Home Equity Product is Right for You
If you’re approved for a HELOAN on HELOC, either can be a straightforward and practical funding option. Remember that HELOANs are considered best for planned expenses, while HELOCs are a flexible option for less certain expenses.
Not all homeowners will qualify for a home equity loan product, but our local loan officers will explore every option for you. Great Midwest Bank offers a range of common-sense lending options to best serve your needs. If you’re unsure which financing option is best for you, we’d love to talk about your goals and help find a solution. Apply for a loan online, call, or visit your local Great Midwest Bank branch.